23-018MR ASIC calls for improved material business risk disclosure in annual reports

On 10 February 2023, the Australian Securities and Investments Commission (ASIC) issued a press release, reminding „company directors to ensure material business risks are adequately disclosed in annual reports, to better inform shareholders and prospective investors“.
As a reminder, „the directors’ report of a listed entity must contain information that shareholders would reasonably require to make an informed assessment of the entity’s operations, financial position and business strategies, and prospects for future financial years. The part of the directors’ report containing this information is referred to as an operating and financial review“. In this context, the two relevant ASIC Regulatory Guides are RG 230 (Effective disclosure in an operating and financial review) and RG 247 (Disclosing non-IFRS financial information).
Indeed, „ASIC’s ongoing financial reporting surveillance program and subsequent inquiries of a selection of 2022 annual reports has led to further listed entities“ (MedAdvisor Limited, Alcidion Group Limited, WOTSO Property, and Webcentral Limited) „disclosing material business risks. The disclosures were in response to ASIC’s concerns that the risks had not been sufficiently disclosed in the operating and financial review (OFR) of the directors’ report“.
„ASIC reiterates the importance of a high-quality operating and financial review, including disclosure of material risks that may affect the achievement of a listed entity’s strategies and prospects. Directors must provide investors with useful and meaningful information about the impact on current and future performance of changing and uncertain market conditions“.
Therefore, „ASIC encourages investors and other interested parties to review the additional materials disclosed by entities in their OFRs. ASIC also suggests preparers of the OFR for other entities review the additional disclosures previously made, as this may assist them to improve their own disclosure.
ASIC continues to closely review a selection of annual reports on a risk-based approach, to ensure entities are correctly disclosing their material business risks as part of the directors’ report“.